Attack on 5,000

April seems like such a long time ago. What were investors thinking then? As you can see from the chart below, April was the last time the ASX/200 traded near the 5,000 level. The index is nowhere near the 2008 high (as you can see). But maybe it’s getting ready to make a run to 5,000 by the end of the year.

Stocks rally like it’s 2008

The wire services are reporting that the big miners are driving stocks up on higher copper and gold prices. That’s a pretty shallow explanation. It’s also an explanation that’s riddled with its own internal contradictions.

Copper and gold are both metals. But as market soothsayers…they couldn’t be more different than Cain and Abel…or Batman and Catwoman…or Spiderman and Doctor Octopus. What gives?

In the bullish corner we have the Stock Doctor himself, Alex Cowie. His trip to Africa involved fiels research on an Aussie-listed copper play. Earlier this week he sent us a short note explaining that while copper prices are up 33% this year, stockpiles are low. He says this is usually a slow time of year for copper. That means the price rises are even more bullish.

What could all of that mean?

Well, if Dr. Copper is right – Dr. Copper being the nickname for copper because copper has a PhD in in economics – he’s bullish on the global economy, but in a vague way. He’s telling us to focus on China, India and the next century of growth led by emerging markets (which, in the aggregate, are bigger than America) and to quit droning on in a nostalgic and annoying way about that has-been America and the growth paradigm of the last century. He’s also of the opinion that the Global Financial Crisis is old news.

We asked Slipstream Trader Murray Dawes if copper had figured in any of his recent trades. The question was prefaced by a look at the chart below. The spot copper price is looking a lot like the ASX/200. It hasn’t made a new all-time high yet. But the fake-out move lower earlier this year looks like it’s been rebuffed.

Source: ANZ

“Murray,” we asked, “when copper’s 50-day MA crossed below its 200-day MA in 2008 it was pretty bearish. But it did the same thing in 2007 and again this year and the spot price moved higher. What’s going on now?”

“It looks like it’s got a lot of momentum. But I don’t have any trades on related to it.”

“No. This is a letter for speculators,” Kris replied. His report, which presumably includes a highly speculative copper share, comes out tomorrow.

All of this leaves your editor scratching his head. It’ s not that we think copper is lying. After all, copper is a metal, not a politician. To the extent that it “speaks”, it’s like one of those psychic mediums that channels the voice of the dead. That is, copper doesn’t speak with its own voice. It’s merely telling you what investors and speculators think (or at least what they’re doing, which may or may not include thinking).

We can’t help but think that now feels like 2007 and 2008. Despite all the convincing and bullish arguments for metals – grounded in the Chindia story – it turned out that commodity prices and futures were a big beneficiary from hot money speculators chasing risk and fleeing the U.S. dollar. All the other arguments were just window dressing for some good old fashioned asset price speculation.

Trust gold on this one. The sagely yellow metal leapt to a new all-time high in New York trading yesterday. It traded as high as $1,311 before retreating a bit. And now, institutional brokerages who once couldn’t find the time of day to talk about gold are competing with another to predict how high it will go.

Yes, this should make you nervous. And yes, it’s likely gold will go back below $1,300 before going up again. But below, we turn it over to the Stock Doc for by far the most hyperbolic prediction of where gold could go. Try US$27,000!

But wait! Before you chortle or choke on your chai, you should know that Alex used a very basic comparision between public debt and central bank gold reserves to come up with his number. It was not plucked from thin air. And he’s not saying that gold will go that high. Only that in a theoretic sense, it could.

Alex wrote that article in May. In the same report he recommended Aussie-listed gold shares that should have benefitted from the rise in US gold prices. They have.

Your editor’s concern today, though, is where do we go from here? This is the central question we’ll be taking up at the Gold Show in Sydney in early November. If gold stocks are just an investment and gold is just a commodity, then all these things move in cycles. Gold will make a high at some point and it will be time to sell and buy something else.

But if gold is money – and it IS money – and if it’s being remonetised into the world’s financial system (and into private portfolios) then something greater is afoot. That “something greater” is the breakdown of the debt-backed money model of the Welfare State. And that breakdown means the GFC isn’t over yet and Dr. Copper is a beguiling little metallic liar. More on that tomorrow.

Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

Does anyone trade triangle patterns? If you draw a straight line on the ASX200 from the 6,800 high over the lower highs and a straight line from the 3,100 bottom to the higher bottoms those 2 lines are about to intersect and form a triangle – is that a bullish or bearish pattern?

NRL Grand Final Preview and the Future “This Sunday the 2010 NRL season comes to a climax when the blockbuster battle for the Premiership title and glory takes place with the Grand Final decider between the St George Illawarra Dragons and Sydney Roosters… “The Wooden Spooners of last year, the Sydney Roosters, are the underdogs in the betting markets currently at a quote of $2.35 through Sportsbet to win and complete the worst to first fairy tale and become the first team to do so since the Western Suburb Magpies in 1934” (rugbyleaguebetting.com.au, October 1, 2010). “There will be plenty… Read more »

Your line is doing OK so far Watcher. If the faery story balance sheets survive your line might survive too.

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